Reit dividends increase tenfold in four years

Four listed trusts paid €93.49 million in dividends last year

Four reits – Green, Hibernia, Yew Grove and I-Res – listed on the Irish Stock Exchange between 2013 and last year. They own about €3.7 billion worth of property. Photograph: Cyril Byrne

Four reits – Green, Hibernia, Yew Grove and I-Res – listed on the Irish Stock Exchange between 2013 and last year. They own about €3.7 billion worth of property. Photograph: Cyril Byrne

 

Dividends paid by real-estate investment trusts (reits) to their shareholders multiplied by almost 10 times to €93.5 million over the four years to 2018, official figures show.

The Oireachtas passed legislation in 2013 permitting businesses to establish the specialised listed property investment trusts in the Republic to lure cash into what was then an ailing property market.

Four reits – Green, Hibernia, Yew Grove and Irish Residential Properties (I-Res) – listed on the Irish Stock Exchange between then and last year. They own about €3.7 billion worth of property.

Figures published on Wednesday by the Government’s tax strategy group show that the dividends paid by the four listed trusts grew to €93.49 million last year from €9.95 million in 2015.

Over the same period, the withholding tax paid by some investors on the dividends they received from the trusts more than trebled to €12.4 million last year from €4 million in 2015.

Backers such as pension schemes, life assurance companies and charities are exempt from paying withholding tax on the dividends they receive from reits. Revenue deducts the tax at 20 per cent from non-resident investors in the trusts.

Reits do not pay tax on their profits once they hand over 85 per cent or more of the rent they earn from tenants in dividends to their shareholders. Investors themselves pay various taxes on that income, ranging from 25 per cent for companies to 12.5 per cent for institutional backers.

The Minister for Finance, Paschal Donohoe, asked the tax strategy group to review how reits and other Irish property funds operated following pressure from political opponents, who claimed such businesses are squeezing working people out of the housing market.

The group, chaired by John Hogan, assistant secretary general at the Department of Finance and head of its tax division, states that it is making no recommendation on how the State should tax these property players.

“It is a policy area that will continue to be monitored closely and, as with all tax regimes, the Government always reserves the right to introduce such amendments to address policy concerns or objectives as needed,” the report says.

Apartments account for slightly more than €1 billion of the €3.7 billion worth of properties that reits own in the Republic. Of this, I-RES holds €931 million. Offices make up most of the balance of reit properties, although Green has some industrial buildings.

Long-term investment

The tax group notes that the reit legislation was designed to encourage long-term investment in the Republic’s property market. However, other investment structures allowed under Irish law resulted from changes to existing legislation to broaden the tax base or clamp down on avoidance.

Overall, the Central Bank estimates that Irish property funds own €16.75 billion worth of property in the Republic. Of this, 89 per cent is commercial property while 11 per cent is residential. Of the total value, 90 per cent is in Dublin and 10 per cent in the rest of the Republic. Investors are taxed if they cash in some or part of their holding or receive a dividend.

The group also considered increasing stamp duty on non-residential property deals by one percentage point from its current 6 per cent rate. Its report estimates that this could raise €94 million extra in a year but warns that it could have an impact on house prices as the tax would apply to development land, as well as farms and other properties.

Mr Donohoe trebled the commercial property stamp duty rate to 6 per cent in a controversial move in Budget 2018 designed to cool the office market and focus more investment on house building.